The Link Between Exports and Hog Prices

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The first half of 2020 has been extraordinary for pork exports. Depending on how you measure it, exports are up 30% to 40% -- a record pace for 2020. The challenge? Not all producers are seeing the value of those exports.

“Under normal circumstances, an increase in exports would cause packers to go on and try and source more hogs. They would then bid up the price of hogs to the benefit of producers. That did not happen during COVID,” says Dermot Hayes, an Iowa State University economist. “The link between an increase in exports and what producers received for their pigs was broken.”

When the packing plants closed temporarily due to COVID-19, the pork industry fell behind in terms of slaughter numbers. 

“Packers were running at their optimal capacity from their perspective. So even if they get an export order, they did not go and try and source more hogs,” Hayes says. “And that created the problem. What was a long-term beneficial relationship between packer exports and producers was not working.”

Since then, the hog market has recovered in part and seems to be functioning normally, Hayes says. He attributes this to large export expectations and a clearing of the backlog of hogs. 

However, there are a lot of pigs coming this quarter, which leads him to believe the industry will face a scarcity of packing plant capacity this fall. 

“The only way we get out of this capacity problem is either to reduce our production, so our plants have excess capacity or build new plants,” he says. “With sows becoming 2% to 3% more productive every year, it's going to be a while before we get back below existing capacity.”

And why would anyone want to invest in a packing plant now? Hayes says since the trade wars began, there’s just been too much uncertainty. 

“You could go back to the beginning of the trade war and blame some of the current situation on the lack of capacity because people were afraid to invest in new plants because we didn't know what would happen from one day to the next,” Hayes says. “The only alternative is to downsize our industry and that's a very painful process.”

Where Would We Be Without Exports?
As of July, pork exports had almost reached $4.6 billion. Hayes says China is behind almost all that business. He expects pork exports to China to continue to be strong for the rest of the year. 

“They have lost 40% to 50% of their pork production due to African swine fever and that disease continues to run rampant in that country. They are trying to rebuild their herd but sometimes the barns break again,” he says. “It’s been tough and pork prices there are through the roof.”

In terms of Japan, a key partner in the export market, the U.S. is regaining market share in terms of seasoned ground pork. Meanwhile, the U.S. has had a rebound in trade from Mexico. However, the pandemic has hit Mexico’s economy hard, as well as the economy of several of the U.S.’s trading partners.

“Last fall was a phenomenal time for exports. If we can just match that, we would be good. We'd end the year maybe 15% to 20% higher year-over-year. And that’s all due to China, who’s buying 11% to 12% of all the pork we produce,” he adds.

The export market is still very important to the U.S. pork industry and continues to add value to pork producers’ bottom line, says Clay Eastwood, director of international marketing at the National Pork Board.

“Those carcass exports to China really helped a lot because those pigs would have had to be euthanized,” Hayes explains. “We didn't have the labor to debone those for the domestic market.”

More from Farm Journal's PORK:

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USMEF: July Beef, Pork Exports Rebound but Still Below Year-Ago

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